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TOPICS:
DIFFERENCE BETWEEN COMMON AND PREFERRED STOCKS
HOW STOCK EXCHANGE WORKS IN PAKISTAN
ASSIGNED BY:
FINANCIAL MANAGEMENT
ASSIGNED TO:
AAMIR SHEHZAD FA08-MBA-002
JAHANZAIB FA08-MBA-046
MUHAMMAD USMAN BASHIR FA08-MBA-052
MUHAMMAD ADNAN MALIK FA08-MBA-066
MUHAMMAD ANWAR FA08-MBA-070
NEELAM JAVAID FA08-MBA-114
RAZA ALI BHATTI FA08-MBA-118
ROHAIL ISLAM FA08-MBA-122
UMMAR LATIF FA08-MBA-154
CONTENTS:
What are stocks?
➢ Types of Stocks traded in Pakistan
Common Stocks
Preferred Stocks
➢ Difference Between Common and preferred stocks
What is Stock Exchange?
➢ What is Index?
➢ How Stock Exchange works?
➢ Role of brokers in Stocks trade
Conclusion
1.1)Types of Stocks
COMMON STOCKS:
In Pakistan mostly companies issue common stocks. Common stock
represents ownership in a company and a claim or dividend on a portion of
profits. Shareholder gets one vote per share to elect the board of directors
who oversee the major decisions made by the management. Common
stockholders entitled to dividend if and when declared by the board of
directors. They have the last claim on the assets of the company after paying
off creditors, bondholders and stockholders, that’s why Common
stockholders are also known as “the residual”.
P0
P0 =
ks
The constant growth modelof common stock valuation, also
called the Gordon model, assumes that dividends will grow at a
constant rate, g. The stock is valued as the present value of the
constantly growing cash flow stream:
D1
P0 =
ks − g
PREFERRED STOCKS:
In Pakistan Preferred stocks are issued by very small number of companies.
Preferred stock represents some degree of ownership in a company but
usually doesn't come with the same voting rights. (This may vary depending
on the company.) With preferred shares, investors are usually guaranteed a
fixed dividend forever. This is different than common stock, which has
variable dividends that are never guaranteed. Another advantage is that in
the event of liquidation, preferred shareholders are paid off before the
common shareholder (but still after debt holders). Preferred stock may also
be callable, meaning that the company has the option to purchase the
shares from shareholders at anytime for any reason (usually for a premium).
Some people consider preferred stock to be more like debt than equity. A
good way to think of these kinds of shares is to see them as being in
between bonds and common shares.
P0
P0 =
ks
Limit Orders: In a limit order, the investor or client suggest the price at
which the order is to be executed.
Market Order: Also known as at best order, the order is executed at the
prevailing market rate.
Clients can purchase shares from their brokers on debt but it is necessary by
SECP that client should pay at least 60% of the amount.
SPOT/T+1 TRANSACTIONS:
Spot transactions imply delivery upon payment. Normally in spot
transactions the trade is settled within 24 hours.
FUTURE CONTRACT:
A Futures contract involves purchase and sale of a financial or tangible asset
at some future date, at a price fixed today.